Pros And Cons With A Ltd Company

[timberup]

My accountant has suggested that I might switch from a sole trading business to a Ltd company for tax purposes. I have been doing some research and the biggest no no for me is having to charge VAT on my services, I'm sure I would lose a lot of custom if this were to happen. My turnover is £35k max. Can anyone give me any fors' and againsts' so I can weigh it all up. Please

[Kaytee26]

I thought that you only registered for VAT when you reached the VAT threshold (£50k+ turnover) and not when you become Ltd

[timberup]

Hi Kaytee, the turnover should be around 77k for VAT but several websites I visited say you have to register with company house and charge VAT for your jobs but it is a little ambiguous about a sole trader or a larger corporation

[Buenchico]

As has been indicated, VAT is irrelevant with regard to whether you decide to set up a limited company or not. Your turnover is well below the threshold, so neither you(as a sole trader) or your limited company can become a 'taxable person' for VAT purposes [unless you do so voluntarily].

(The term 'taxable person' applies to anyone who pays VAT, irrespective of whether the 'person' is an individual, a club, a charity or a business employing tens of thousands of people).

There have been several studies that show that consumers are more likely to put their trust in a business that has 'Ltd' on the end of the name, rather than in a sole trader. (Which is actually rather odd because, if a sole trader's business fails, customers can sue the boss personally but they can't sue the directors or shareholders of a limited company. It seems that, for some strange reason, 'Ltd' is seen as indicating 'professionalism').

If there's a chance that the failure of your business could put your major personal assets (such as your home) at risk then you DEFINITELY need to set up a limited company (to divorce your assets from those of the business). Otherwise there might be little point in doing so at the present time unless you think that having 'Ltd' on the end of the company name would make your business look more professional.

[timberup]

methyl, I am a humble lone carpenter who is not a Ltd company so need no wage withdrawal from an account, just take it when I need it. I work for no large companies, but what I am coming round to thinking is that being a Ltd company is hard work for someone like me, for some minor benefits and a couple of good things both equalling out pretty much.

[Zacs-Master]

Your accountant may have suggested it as you wil have to part with about £200 for him to Do your tax returns. Something which takes about half an hour for a simple one.

[Zacs-Master]

Sorry, meant audited accounts not tax return.

[timberup]

Zacs- the average price for an accountant here down south for basic returns is around £200 for Ltd it is approx. £600+

[Zacs-Master]

Move north Timber.

[FredPuli43]

Trust your accountant. He or she knows the 'pros' (I'm not an accountant, but have experience both of being a director of limited companies and of running a business privately as a 'trading as', and I can see a lot of pros and can hardly think of a 'con').

With a limited company, nobody can take your house or your money if the business fails owing them money. It might be you, trading as a limited company, but the debts are the company's , not yours personally. If the company can't pay, that's the creditor's problem, not yours

VAT is totally irrelevant; if you are past the threshold you have to charge it and also reclaim it whether a company or not . You reclaim it on every VAT added bill you receive in connection with the business. Now, VAT registered suppliers are charging you VAT and you can't get it back. That will probably stay the case, but that's the benefit of being registered

[timberup]

Thanks for your input Methyl, I am not young enough to expand really, I just want the same as most people. i'm happy in my work, not really very materialistic apart from a good holiday, have a relatively comfortable wage for my lifestyle and pay the least amount of tax legally to HMRC. My accountant seems to think that switching to Ltd would achieve the latter but if that makes less manoeuvrability with my finances and more worries to boot then i'd rather not bother

[SirOracle]

Methyl I am intrigued by this ten million pound insurance policy which a Ltd. co can have but a non Ltd co cannot have. I presume you are talking about a Public Liability policy with an indemnity of ten million pounds.

There is nothing to prevent a sole trader effecting such a policy,and I very much doubt that an underwriter would differentiate between a Ltd co and a non Ltd one.

[Skyline D]

As per usual some nonsense being spouted by people who haven't a clue. Zacs Master there is absolutely no reason why the company would need audited accounts and frankly the last thing any accountant wants to do is a company audit. Most of them aren't even licensed to do auditing these days. It's unlikely the fees for a basic set of company accounts and corporation tax return are significantly different to those being paid for the sole trader.

As others have said, VAT has no relevance here. Whether you need to register for VAT or not (and clearly you don't) is not related to whether or not you are incorporated.

Also, whilst Chris' points about Limited and homes being at risk may be relevant they are not likely to be the reason the accountant is suggesting the change. If the accountant is competent, and suggesting the change then it will be for tax reasons in some way. The usual reason for incorporation is because once you earn enough to be taxed at 40% then corporate tax is cheaper than income tax if you intend to leave the funds in the business. Given your turnover here is £35k that seems unlikely in this case but perhaps timberup has a lot of investment income or income from other sources? Or there me be other tax planning reasons to suggest the change?

[FredPuli43]

And timberup, Skyline's reply is from someone who does accountancy for a living, rather than someone who merely suffers it !